We are extremely confident that we figured out this investing phenomenon. At the same time, we are well aware that we are swimming upstream, but both of these things can be true at the same time.
We are confident because we believe that our position is internally consistent. As far as we can see, there are no dead ends, no inconsistencies nor any strange outcomes. A purchase of a cash-flow-generating asset at the right price is the pure and proper definition of investing. Using this definition, everything falls into place nicely, forms a solid foundation and is consistent with proven success throughout history.
The other side, if you can call it that, is full of dead-ends and inconsistencies. Gold is a safe asset, says Nouriel Roubini, but not Bitcoin. Why not? What is the difference, other than gold having been around longer? Bitcoin is investing, says Ric Edelman, but Dogecoin is a scam. Why? Because Bitcoin has been around just a few years longer?
If your investment characterization depends on the level of adoption, we, as a society, will never agree whether something is an investment or not, because everybody has a different view of what sufficient adoption means.
Also, if a certain level of adoption is what is needed to earn the “investing” label, there is an unfortunate implication. This interpretation implies that “assets” can dart in and out of the “investment” zone as people’s preferences change - i.e. if a certain asset is in vogue, it becomes an investable asset but if it falls out of fashion, it stops being an investment. Then, if it becomes popular again, it would become an investment again. We submit that doesn’t make any sense.
Ask most people what the tulip mania was, and most of them would say it had nothing to do with investing. Well, we say that with the benefit of hindsight. We are sure it looked like a great investment to many people at the beginning of the mania. Some people must have cashed out at $100,000 a pop, and they did great.
Investing ultimately needs to tie to the design of an asset. It is true that one cannot pinpoint an exact price point below which a purchase of a cash-flow-generating asset becomes an investment. It is a spectrum, but the investing roadmap is clear:
Calculate value based on cash flows;
Compare price to value and buy if price is sufficiently below value.
On the other hand, it should be obvious what the right price is for a non-cash-flow-generating asset: zero.
There is no price at which the purchase of a non-cash-flow-generating
asset becomes an investment.
If we are being honest with ourselves, we don’t really see how any conclusion other than this one is possible. So why is this not the popular opinion?